Paul Forrest and Melissa Jane Forrest v Insurance Australia Limited t/as NRMA Insurance - [2012] ACTSC 47

PAUL FORREST and MELISSA JANE FORREST v INSURANCE AUSTRALIA LIMITED t/as NRMA INSURANCE
[2012] ACTSC 47 (30 March 2012)

PRACTICE AND PROCEDURE – preliminary discovery – discovery to identify right to claim relief – whether applicants have sufficient information to decide whether to start a proceeding – whether Markus discretion applicable to preliminary discovery – whether disclosure of existence of investigation report and partial disclosure of contents relevant to exercise of Markus discretion.

Court Procedures Rules 2006, r 651
Insurance Contracts Act1984 (Cth), s 56

Markus v Provincial Insurance Co Limited (1983) 25 NSWCCR 1
Marsden v Amalgamated Television Services Pty Limited [1999] NSWSC 428
Broadwater Taxation and Investments Services Pty Limited v Hendricks (1993) 51 IR 221
Kon v AMP Life Limited [2006] NSWSC 957
Halpin v Lumley General Insurance Limited (2009) 78 NSWLR 265
Re an application under section 73 of the Civil Law (Wrongs) Act(No 2) [2011] ACTSC 26
Morton v Nylex Limited [2007] NSWSC 562
Briginshaw v Briginshaw (1938) 60 CLR 336

No. SC 44 of 2012

Judge: Master Harper
Supreme Court of the ACT

Date: 30 March 2012

IN THE SUPREME COURT OF THE )
) No. SC 44 of 2012
AUSTRALIAN CAPITAL TERRITORY )

BETWEEN:PAUL FORREST and MELISSA JANE FORREST
Applicants

AND:INSURANCE AUSTRALIA LIMITED t/as NRMA INSURANCE
ACN 000 016 722

Respondent

ORDER

Judge:  Master Harper
Date:  30 March 2012
Place:  Canberra

THE COURT ORDERS THAT:

the respondent has leave to file in court the affidavit of Carlos Jaramillo sworn 22 March 2012.

until further order the affidavit of Carlos Jaramillo be placed in a sealed envelope not to be opened other than by order of a Judge or Master.

the originating application be dismissed.

the applicants pay the respondent’s costs of the proceeding.

On 25 October 2010 a fire at Monash damaged, and perhaps destroyed entirely, the contents of a house. The applicants were tenants of the house and owned the contents, which they had insured under a home contents insurance policy issued by the respondent. The applicants have made a claim under the policy. The respondent has refused the claim.
In February 2010, the respondent sent the applicants a seven-page letter setting out the reasons for the refusal of the claim. In the letter, the insurer said that the applicants had not been truthful and frank in statements made in relation to the claim, and had knowingly made false statements in support of it. The letter went on to say that information obtained by the insurer during the course of its enquiries indicated that the fire had been deliberately lit. The insurer expressed the belief that the fire had been lit by the applicants or by someone who had entered the property with their consent.
In the letter, the insurer disclosed that it had engaged the services of a forensic fire expert to examine the scene of the incident for the purpose of determining the cause and origin of the fire. The letter quoted eight paragraphs from the expert’s report.
The applicants, through their solicitors, have asked the insurer for a copy of the full report. The insurer has refused to provide it.
The applicants now apply to the court for an order under r 651 of the Court Procedures Rules 2006 for preliminary discovery.
Rule 651 is as follows:
Discovery to identify right to claim relief
(1) This rule applies if—
(a) a person (the applicant ) has, or may have, a cause of action against someone (the potential defendant ); and
(b) either—
(i)the applicant, after making reasonable inquiries, cannot obtain sufficient information to decide whether to start a proceeding in the court against the potential defendant for the cause of action; or
(ii)the following provisions apply:
(A)the applicant is a party to a proceeding in the court;
(B)the potential defendant is not a party to the proceeding;
(C)the applicant, after making reasonable inquiries, cannot obtain sufficient information to decide whether to make a claim for relief in the proceeding against the potential defendant for the cause of action;
(D)the claim for relief could properly have been made in the proceeding against the potential defendant if the potential defendant were a party; and
(c) the applicant has reasonable grounds for believing that the potential defendant has or has had possession of a document or thing that can assist in deciding whether to start the proceeding, or make the claim for relief, against the potential defendant; and
(d) inspection of the document or thing by the applicant would help in making the decision.
(2) If subrule (1) (b) (i) applies, the applicant may apply to the court by originating application for an order under this rule (and, if relevant, an order under rule 715 (Inspection, detention, custody and preservation of property—orders etc)) against the potential defendant.
(3) If subrule (1) (b) (ii) applies, the applicant may apply to the court for an order under this rule (and, if relevant, an order under rule 715) against the potential defendant.
Note Pt 6.2 (Applications in proceedings) applies to the application.
(4) The application must be supported by an affidavit stating the facts on which the applicant relies, and stating the kinds of documents or things in relation to which the application is made.
Note 1 For an application mentioned in r (2), div 2.2.3 (Originating applications) contains provisions about the content of originating applications, the filing and service of originating applications, etc.
Note 2 For an application mentioned in r (3), r 6008 (Application in proceeding—filing and service) deals with service of the application and supporting affidavit.
(5) The court may order the potential defendant to produce the document or thing to the applicant.
(6) An order under this rule in relation to any document or thing held by a corporation may be addressed to any appropriate officer or former officer of the corporation.
The sum insured under the policy, which had been in force since 18 November 2009, was $300,000.00. The amount claimed by the applicants pursuant to the policy is $234,447.00.
Ms Kimberly Moore, a solicitor employed by the firm acting for the applicants, deposes in an affidavit that the respondent insurer has refused to provide her firm with a copy of the investigation report, and that without the report, it would in her professional opinion be very difficult to advise the applicants whether any action commenced by them to enforce a claim under the insurance policy would enjoy reasonable prospects of success.
Counsel for the applicants submits that on that evidence the court should be satisfied that the applicants have made reasonable enquires but cannot obtain sufficient information to decide whether to start a proceeding against the respondent insurer; that the investigation report could assist in deciding whether to start a proceeding; and that inspection of the document would help in making the decision.
During the course of the hearing, counsel for the respondent insurer sought leave to file in court an affidavit by a partner in the firm of solicitors acting for the respondent, subject to the condition that it not be served upon the applicants. Counsel for the applicants objected to leave being granted. I told counsel for the parties that I would need to read the affidavit in order to rule on the issue, and would give reasons for my decision whether or not to grant leave when I determined the principal application.
I have scrutinised the affidavit with more than usual care in circumstances where the applicants are not in a position to object to any of its contents. I have struck from it paragraphs 7, 8, 9 and 10. Paragraphs 7 and 8 of the affidavit purported to summarise or to quote selectively from, the reports, and paragraphs 9 and 10 contained matters of submission rather than fact. What remains of the affidavit effectively does no more than annex an original report dated 21 December 2010 and a supplementary report dated 7 February 2011.
The passages quoted in the insurer’s letter of 23 February 2010 were from the supplementary report. The letter did not state that there were two reports, and gave the impression that there was only one. Hence the correspondence from the solicitors for the applicants, and the application itself, have been based on an assumption that the insurer has a single expert report. Now that the position is clear, I propose to treat the application as one for production of both reports.
It has, at least to that extent, been necessary for me to read the confidential affidavit, and, at least to that extent, the fact that I have done so has proved to be of benefit to the applicants rather than otherwise. More generally, it has been beneficial for me to read the reports in order to understand the submissions of counsel for both sides. In the circumstances I propose to grant leave to the respondent to file the affidavit in court, and to order that the provisions of the Court Procedures Rules 2006 requiring service of a copy of the affidavit on the applicants be dispensed with. I propose, in addition, to order that until further order the confidential affidavit be placed in a sealed envelope, not to be opened other than by order of a Judge or Master. My intention would be that its confidentiality be removed once the applicants have given their evidence in any proceeding which they may institute against the respondent.
Counsel for the respondent insurer conceded that the reports were not protected by privilege. The concession was correctly made: the reports were brought into being for the dominant purpose of deciding whether or not to meet the insurance claim, not for the dominant purpose of litigation. At the time the reports were commissioned and came into existence, no litigation was in contemplation. Additionally, had the reports been privileged, the privilege would have been waived by the insurer in disclosing in its letter of 23 February 2010 significant portions of the report.
Counsel for the respondent relied on two arguments. The first was that the applicants already had sufficient information to decide whether to start a proceeding in the court against the respondent insurer, and accordingly r 651 was not available to them.
The second argument was that the court should exercise its discretion not to require production of the reports pursuant to the principle which has developed following the decision of Clarke J in the Supreme Court of New South Wales in Markus v Provincial Insurance Co Limited (1983) 25 NSWCCR 1. In Markus, Clarke J declined to order production of a report by a loss assessor in the course of discovery, notwithstanding that privilege did not attach to it. The report contained information about discussions with police officers, and hypotheses based on the discussions. Clarke J held that the report was of such a nature that its material would not enable the plaintiffs to be in a better position from the point of view of the presentation of their case at trial. Allowing them to see the document would put them on notice of allegedly suspicious circumstances, enabling them to tailor or endeavour to tailor their evidence to meet the circumstances. His Honour acknowledged that production of the report to the plaintiffs might increase the likelihood of settlement, but concluded that this was outweighed by the greater interest of ensuring that the court gave justice to the parties.
The Markus discretion has been exercised to refuse a party leave to inspect documents on subpoena (Marsden v Amalgamated Television Services Pty Limited [1999] NSWSC 428 per Levine J) and to exempt a party from a requirement pursuant to a direction that certain affidavits be served before trial (Broadwater Taxation and Investments Services Pty Limited v Hendricks, (1993) 51 IR 221 per Santow J; Kon v AMP Life Limited [2006] NSWSC 957 per Barrett J). The principles to be applied were explained in some detail by Sackville AJA, with whom Tobias and Basten JJA concurred, in Halpin v Lumley General Insurance Limited (2009) 78 NSWLR 265. The discretion, it was held, could be exercised so as to permit a defendant insurer to withhold service of affidavits relating to investigations supporting a defence that the insured had provided false information to induce payment of the claim, notwithstanding the then regime under legislation and rules of court in New South Wales requiring such service.
A number of the New South Wales authorities were cited with approval by Refshauge J in Re an application under section 73 of the Civil Law (Wrongs) Act(No 2) [2011] ACTSC 26, where his Honour dealt with the interaction between the Markus discretion and specific provisions of the Civil Law (Wrongs) Act 2002 as to non-disclosure of documents in personal injury actions where fraud is suspected. I am in no doubt that the court has a discretion in accordance with the Markus principle to refuse an application under r 651. It is clear from the wording of subrule 651 (5) that the power to order a potential defendant to produce a document is a discretionary one, and that the rule confers no right on an applicant to an order simply by satisfying the court that the rule applies.
In considering the exercise of the discretion, the court may regard as a relevant factor the fact that a potential defendant has disclosed the gist of the document to the applicants, as occurred here. Such a situation may be seen as analogous to a waiver of privilege in a document to which privilege had attached.
In relation to whether the applicants meet the requirements for the application of r 651, counsel for the respondent submits that the applicants have not established that they have been unable to obtain sufficient information to decide whether to start a proceeding against the respondent. Counsel refers to the following passage from Morton v Nylex Limited [2007] NSWSC 562, in relation to the equivalent rule in New South Wales:
The onus is on the plaintiffs to make it appear to the court that, having made reasonable enquiries, they are unable to obtain sufficient information to decide whether or not to commence proceedings against Nylex. The third requirement of r 5.3(1)(a) requires an objective assessment of the information already possessed by the plaintiffs to determine whether that information is sufficient for such a decision to be made. The question is whether the applicant has insufficient information to be able to decide whether to institute proceedings; not merely to establish a cause of action. Hence, an applicant may be entitled to preliminary discovery of documents relevant to available defences, or the extent of apprehended breaches, or the likely quantum of damages, as well as of documents which may establish whether there is a cause of action. However, unless the applicant is lacking something reasonably necessary to make a decision whether to institute proceedings, he or she is not entitled to preliminary discovery. An applicant must disclose what information he or she already has relevant to making such a decision, and identify what information is lacking. Preliminary discovery cannot be used to build up a case which an applicant has already decided, or could decide, to bring.
It is common ground that the contents owned by the applicants were the subject of the insurance policy, and that the policy covered damage by fire. The policy is in evidence, and there is no real issue that the policy would cover the damage and entitle the applicants to cover unless either a general exclusion under part 5 of the policy applies, or the applicants are found to have failed to meet their responsibilities under part 6 of the policy.
For example, one of the general exclusions under part 5 is that the policy does not cover loss or damage arising from an intentional act or omission by the insured, the family of the insured or anyone who lived in the home, or anyone acting with the consent of the insured, a family member or a resident of the home.

The responsibilities of the insured under part 6 of the policy include a duty to co-operate fully with the insurer, and to be truthful and frank in any statement made to the insurer.

Additionally to the terms of the policy, s 56 of the Insurance Contracts Act1984 (Cth) allows an insurer to refuse payment of a fraudulent claim. An insurer alleging fraud under s 56 bears the onus of proof and would normally be expected to establish fraud by reference to the formulation of Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361.

For the application of r 651, the court should assume that the applicants are genuine, and that the contents of the claim form lodged by the applicants are true. The claim form is not in evidence (the applicants apparently did not keep a copy). The court does not have the benefit of an affidavit by either of the applicants, nor does their solicitor’s affidavit attach a statement or set out on information or belief what they say about the fire. I assume for the purposes of the application that their evidence will be that they were away from the house when the fire started and do not know how it started.

There is in evidence a report by the ACT Fire Brigade of its investigation of the fire, which does not implicate the applicants as having played any role in starting it.

Assuming the applicants to be truthful and genuine, it appears to me that they have sufficient information to decide whether to start a proceeding against the respondent insurer, which would presumably be an action for breach of the policy in refusing the claim. The basis of the insurer’s refusal to meet the claim is plain. If the applicants are genuine and have at all times been truthful with the insurer, I cannot see why they need access to the investigation reports in order to make a decision whether to start a proceeding against the insurer. They can assume that such a proceeding will be defended, and that the insurer will be seeking to establish that they were responsible for starting the fire and that the claim was fraudulent. But it seems to me that the applicants already possess enough information to decide whether to start a proceeding against the insurer. Accordingly, the circumstances do not meet the requirements for the application of r 651, and the court does not have power to order the respondent to produce the reports.

I should add that if I were found to have been mistaken about this, and had a discretion to order production of the reports, I would be minded to do so notwithstanding the submissions of counsel for the respondent about the Markus discretion. In circumstances where the insurer had chosen to disclose the existence of an investigation report and to quote selectively from it, I would not be minded to exercise the Markus discretion in its favour, but would rather be minded to exercise the discretion available under r 651 to require production of both reports.

However, having found that r 651 does not apply, there is no course available to me other than to dismiss the application. Costs will follow the event.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.
Associate:
Date: 30 March 2012

Counsel for the applicants:  Mr J Pappas
Solicitors for the applicants:  Meyer Vandenberg
Counsel for the respondent:  Ms L Mullins
Solicitors for the respondent:  William Roberts Lawyers
Date of hearing:  23 March 2012
Date of judgment:  30 March 2012